DOJ agrees to settle with Citigroup over issues regarding RMBS

If you had a dollar for every mortgage probe settled over the last five years, you might have a figure close to one of the settlement amounts…well that may be a bit of an exaggeration, but there’s no denying the frequency of such settlements has increased dramatically following financial meltdown of the late aughts.

Citigroup becomes the most recent to settle, agreeing on July 14 to fork over $7 billion to the Department of Justice (DOJ) to settle investigations and multiple state and federal lawsuits concerning the questionable residential mortgage backed securities (RMBS) the bank sold on the run up for to the financial crisis.

The settlement is the largest ever extracted under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and will be split between penalties and relief for beleaguered homeowners. $2.5 billion will go to underwater mortgage holders, offering some relief to those affected by the sale of the RMBS, and the remaining $4.5 billion will be taken as civil penalty.

Citigroup will also be required to admit wrongdoing in the issue, a penalty that other banks who have settled similar cases with the DOJ have been able to avoid. The settlement does not prevent the bank or any of its employees from facing criminal charges in relation to the issues.

Attorney General Eric Holder said in a statement that, “the bank's activities contributed mightily to the financial crisis that devastated our economy in 2008.”

Commenting on the scope of the issue, U.S. Attorney of the Eastern District of New York Loretta Lynch said, “After nearly 50 subpoenas to Citigroup, Trustees, Servicers, Due Diligence providers and their employees, and after collecting nearly 25 million documents relating to every residential mortgage backed security issued or underwritten by Citigroup in 2006 and 2007, our teams found that the misconduct in Citigroup’s deals devastated the nation and the world’s economies, touching everyone.”

As with similar deals, the settlement dragged on for multiple months as regulators, state officials and bank executives negotiated a potential settlement. Ultimately, the DOJ decided that the potential litigation would be prohibitively expensive for both sides, but felt that the settlement was an appropriate deal to end the pending complaints.